Scottish Widows owner: Pension funds deal risks making UK like China
Labour’s flagship deal with pension funds risks making the UK economy more like China, the boss of Lloyds Banking Group has warned after its subsidiary Scottish Widows chose not to sign up to the agreement.
Chancellor Rachel Reeves won the support of 17 pension funds which agreed to invest at least five per cent of assets in the UK by 2030 under the Mansion House Accord, which gives the government powers to force investment in domestic assets.
But Charlie Nunn, the chief executive of Lloyd Banking Group, which owns the major pension fund Scottish Widows, has said the government’s threat of mandation would undermine fiduciary legal obligations to find the best returns of savers.
Scottish Widows signed up to a previous iteration of the Mansion House Accord established under former Chancellor Jeremy Hunt but chose to snub Reeves’ deal in May before revealing it was planning to cut exposure to UK equities in its highest growth portfolio down to three per cent.
“Mandating allocations of pension funds is a form of capital control, ” Nunn told the Financial Times.
“I have spent 10 years of my working life in China and many jurisdictions where there are capital controls. That is a different model and that is a difficult slope for an economy that believes it is an open economy.”
Nunn, who pointed out Lloyds had £35bn allocated towards investment in British assets, suggested the government should focus on housing in order to drive growth in the UK economy, with too much focus put into adjustments around savings over real problems.
Pension reforms to come
“Everyone gets tied up in the cash ISA debate ,” he said, with Rachel Reeves expected to cut limits from £20,000 in a bid to encourage Brits to invest in stocks and shares.
“That’s not where the problem is. That’s not the way to turn around the economy.”
“[Housing] will drive growth in communities [and] productivity. It’s very important as a foundation for the UK.”
Last month’s Spending Review allocated £39bn towards building affordable housing in the UK over the next ten years.
Housebuilders have bucked trends in the construction sector, with more firms optimistic about production as planning reforms take effect.
But investors in the City are worried the government is set to target businesses with a wave of new taxes due to the erosion of the Treasury’s fiscal buffer.
A memo revealed deputy prime minister Angela Rayner called for a corporation tax surcharge on bank profits to be raised from three per cent, allowing the government to spend on winter fuel payments and welfare after reforms failed to pass.
Nunn that extra taxes on banks’ profits would reduce lending, in turn stifling growth ambitions as spending slows down.
But his “glass half full” approach suggested that growth may be better than expected.
“The economy is healthier.
“The issue is we don’t have the confidence and the vision to invest and we are not getting businesses investing in that next stage of growth.”
Rachel Reeves is set to deliver her Mansion House speech next week, with reforms to pensions and investment widely expected to feature heavily in a strategy paper published alongside the event.